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MPs set terms for MSB deal

–Say outstanding debts be collected first

–Propose govt to  hold 51 percent

 

Dust is refusing to settle in the proposed disposal of part of government stake in State-owned Malawi Savings Bank (MSB), with a parliamentary committee setting tough conditions for the institution’s divestiture.

The Nation has established that the Budget and Finance Committee of Parliament wants Capital Hill to ensure that non-performing loans are collected first before authorities sell 49 percent, not 75 percent, of the bank.

Up for sale: The MSB head office complex in Blantyre
Up for sale: The MSB head office complex in Blantyre

In an eight-page report dated March 23 2015 and seen by The Nation, the committee asks government to help MSB board and management to ensure that Mulli Brothers Limited (MBL) pays back its long outstanding debt to the bank estimated at K4.6 billion which, however, is being contested in court.

“If there are outstanding payments to MBL, government should implement its undertaking to pay Mulli Brothers through MSB as enshrined in the ‘Assignment of Proceeds’ arrangement between MBL Holdings and MSB,” it says.

Reads the report in part: “Government to implement the spirit of the letter issued in July 2010 in which it confirmed government’s initiative to direct some of the   payments through MSB. The courts have to exercise their total independence and expedite the case.”

Parliament’s tacit and apparent conditional softening of the heart on the bank’s sale comes hot on the heels of yesterday’s report by our sister newspaper, Nation on Sunday, that concerned MSB employees have obtained a court order stopping the Public Private Partnership Commission (PPPC), Minister of Finance and other stakeholders from disposing of government shares in MSB.

The employees, who exclude executive management, argue that procedures have been flouted.

The committee also called upon government to pay MSB all outstanding debts by some public institutions, including Smallholder Farmers Fertiliser Revolving Fund of Malawi (SFFRFM), Agricultural Development and Marketing Corporation (Admarc), Malawi Defence Force (MDF), Malawi Rural Finance Company, Public Universities Student Scheme, Malawi Rural Development Fund (Mardef) and Farm Input Loan Programme (Filp).

The committee, however, set conditions for the government “if it decides to proceed with its decision of selling the bank now, against the wishes of the committee and Malawians”.Parliament_2014

In the report, the committee notes with concern that despite a lot of efforts by MSB management to collect the debt, both the Executive and courts have not been helpful.

“The case in point is when MSB management and Mulli Brothers signed an assignment of proceeds whereby all money owned by government to Mulli Brothers was supposed to be channelled through MSB and government issued a Letter of Undertaking to this effect. Contrary to this arrangement, government continued to bypass MSB and paid Mulli Brothers directly.

“In its endeavours to collect the debt from Mulli Brothers, MSB filed a demand letter in Courts and Mulli Brothers responded by obtaining a stay of execution of the Court order and has since appealed to the Supreme Court. The matter has been in Court since October 2012 with no hope for MSB to collect the debt,” reads the report.

The conditions also included that government should only shed 49 percent of the shares and not 75 percent as proposed.

Further, the committee also asks government to appoint an independent body to evaluate the bank so that the nation understands its real value and sell the shares at the right price.

Adds the report: “Whoever is to buy the 49 percent shares should not close the bank’s branches and agencies so that people in rural areas still enjoy banking services.

“The whole tendering process and sale of MSB should be handled by an independent entity and not PPP Commission, which has a bad reputation when it comes to selling of government assets. Stemming from the then Privatisation Commission, the entity has not made sure that public assets fall in the right hands. Most of the privatised entities have shed jobs, made no tangible investments and have not operated in the interest of Malawians.

“It is the wish of the committee to see that the issue of MSB is handled in the best interests of Malawians and not just to serve personal interests of some quarters within our society. The committee trusts that the shareholder [government] will find the concerns and recommendations valuable as the bank remains the asset of Malawians and whatever decision to be made should benefit the public.”

Further, the committee observes that another issue of concern is the differences in information on the current value of the bank and the amount required to take it back on its feet shows that no independent valuer has been engaged to determine the real value of the bank and its requirements.

Parliament also observes that it has information that MSB’s sole bidder, FDH Bank, is currently in wrangles with its partners known as Kingdom Investment from Zimbabwe.

The committee fears that such wrangles may have an effect on the performance of the bank once FDH has acquired it.

FDH Financial Holdings Limited emerged the sole bidder of MSB and offered K4.5 billion for what Minister of Finance, Economic Planning and Development  Goodall Gondwe said represented 75 percent of the bank’s shares.

But Gondwe said government would negotiate a better price.

Parliament has been against the proposed sale of MSB as evidenced by a February 26 2015 Private Members’ motion. After debate on the issue, the House referred the matter to the Budget and Finance Committee, which has since produced the recommendations.

Parliament also tore apart the simultaneous tendering of MSB and Indebank, saying it was not a good idea.

The committee observes  that MSB is still a profitable venture despite its weak financial position due to undercapitalisation, adding that as of September 30 2014, the bank made an after-tax profit of K604 million coming from a pre-tax loss of K193 million in a similar period the previous year.

“The bank satisfies the Basel II condition of minimum capital requirement, but falls short of core capital and total capital ratios. This has prompted the shareholder [Government] to find ways of raising capital so as to comply with the stipulated ratios. According to the Reserve Bank [the regulator], MSB is short of K4.9 billion to meet Basell II requirement and K5 billion for a full provision of the non- performing loans.

“The Financial position of the bank has been further weakened by toxic or non-performing loans which are in excess of K4.5 Billion. The bank’s non-performing loans stand at 28 percent of total loan portfolio, which could be the highest among all banks in the country. These loans were taken by politically exposed persons and the bank did not comply with statutory lending limits when lending them,” observes the committee.

The committee also expresses surprise that only FDH bid for MSB out of the 11 prospective investors invited to the bidders’ conference.

MSB, which employs 630 people, has K53 billion in assets as of January 2015. However, total capital required for the bank to be on its feet has not been established as various stakeholders gave different values to the committee.

MSB is a fully fledged commercial bank, which offers a wide range of services to low-to-middle-income individuals in the rural, semi-urban and urban areas.

 

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